Distressed Real Estate Funds
This week, BHA analysts found a significant increase in the number of investors specifically interested in distressed real estate strategies. This is more than likely due to the turmoil that the overall real estate market has experienced during the past year to 18 months. Real estate funds are finding more and more opportunities to purchase distressed properties in the commercial and industrial spaces at substantial discounts to what many would consider their real market value.
A good example of this trend is a U.S. wealth advisor based on the East Coast. It is not seeking alpha generating programs but rather long-term players that are focusing on quality properties that will see significant gains as the economy begins to rebound.
Another investor, an insurance company in Korea, expressed an interest in distressed real estate funds specifically in the U.S. These funds have taken the brunt of the beating thus far; the value of their holdings has been downgraded and businesses of various sizes have closed locations. This company believes that over time, distressed real estate funds will begin to find opportunity horizons widening as aftershocks of the current economic situation are felt across the globe.
Finally, a wealth advisor based in Virginia mentioned that distressed is of particular interest right now for its clients. The firm seeks to present its clients with the best risk-adjusted opportunities across its portfolio. It believes that real estate funds in the distressed space will give its clients a solid long-term return that will complement its overall portfolio and ultimately hedge against short-term risk.
Of the numerous real estate investors with which BHA analysts have spoken this week, close to half expressed a specific interest in distressed funds. This ratio is an outlier when the overall percentage of investors interested in this strategy year to date is just over 15 percent. Based on this data in the coming months we may find more investors actively looking to take advantage of the recent drop in the real estate markets by taking positions in distressed real estate funds.